INTRODUCTION

Steel is crucial to the development of any modern economy and is considered to be the backbone of the human civilisation. The level of per capita consumption of steel is treated as one of the important indicators of socio-economic development and living standard of the people in any country. It is a product of a large and technologically complex industry having strong forward and backward linkages in terms of material flow and income generation. All major industrial economies are characterised by the existence of a strong steel industry and the growth of many of these economies has been largely shaped by the strength of their steel industries in their initial stages of development.

HISTORICAL PERSPECTIVE

The finished steel production in India has grown from a mere 1.1 million tonnes in 1951 to 23.372 million tonnes in 1997-98. During the first two decades of planned economic development, i.e. 1950-60 and 1960-70 the average annual growth rate of steel production exceeded 8%. However, this growth rate could not be maintained in the decades to follow. During 1970-80, the growth rate in steel production came down to 5.7% per annum and picked up marginally to 6.4% per annum during 1980-90.Though India started steel production in 1911, steel exports from India began only in 1964. Exports in the first five years were mainly due to recession in the domestic iron and steel market. Once domestic demand revived, exports declined. India once again started exporting steel only in 1975 touching a figure of 1 million tonne of pig iron export and 1.4 million tonnes of steel export in 1976-77. Thereafter, exports again fell rapidly to meet rising domestic demand. Only after liberalisation of the steel sector the exports of iron and steel have once again started increasing. Though the country's production of iron and steel is sufficient to meet the domestic demand, however, some quantity of steel is always needed to be imported especially those grades and qualities which are required in small quantities, and therefore do not justify setting up of production capacities.

The progress of the steel industry has a critical influence on the pace of India's development and as such great importance is attached to capacity expansion in line with expected demand at cost and prices, which make Indian steel internationally competitive. The new economic policies being pursued by the Government have opened up new opportunities for the expansion of the steel industry. With a view to accelerating the growth of the steel sector, the Government has initiated a number of policy measures since 1991.

LIBERALISATION OF THE INDIAN STEEL SECTOR

The important policy measures which have been taken for growth and development of the Indian Iron & Steel Sector are as under :

In the new industrial policy announced in July, 1991 Iron and Steel Industry, among others, was removed from the list of industries reserved for the public sector and also exempted from the provisions of compulsory licensing under the Industries (Development and Regulation) Act,1951.

With effect from 24.5.92 iron and steel industry was included in the list of 'high priority' industries for automatic approval for foreign equity investment upto 51% (now 74%).

Price and distribution of steel were deregulated fron January, 1992. At the same time, it was ensured that priority continued to be accorded for meeting the requirements of small scale industries, exporters of engineering goods and North Eastern Region, besides strategic sectors such as Defence and Railways.

The import regime for iron and steel has undergone major liberalisation moving gradually from a controlled import by way of import licensing, foreign exchange release, canalisation and high import tariffs to total freeing of iron and steel imports from licencing, canalisation and lowering of import duty levels. Export of iron and steel items was also freely allowed.

Import duty on capital goods was reduced from 55% to 25%. Duties on raw materials for steel production were reduced. These measures reduced the capital costs and production costs of steel plants.

Freight equalisation scheme was withdrawn in January'92, removing freight disadvantage to states located near steel plants. At the same time, it was ensured that far-flung areas and distant states were protected by stipulating that beyond the freight ceiling distance, the main producers would continue to bear the freight charges.

Levy on account of Steel Development Fund was discontinued from April'94 providing greater flexibility to main producers to respond to market forces.

CURRENT GLOBAL SCENARIO

After recording a growth rate of 3.2 in 1996 over the previous year crude steel production world wide went up by over 6% in the first half of 1997 over the corresponding period of the previous year. However, during the second half of 1997 and in the first half of 1998, production of steel worldwide has shown signs of slowing down. In fact, the markets in EU, USA and Japan continued to remain depressed through out 1997 in 1998 as a result of financial crisis gripping several world economies, especially in CIS and South East Asian nations.

The developing countries, in particular those in South East Asia continue to remain the focus of attention in so far as the dynamics of the steel industry for India is concerned. Till these markets improve, India will continue to face problems in exporting iron and steel. On the pricing front, with the emergence of Latin America, South Korea, Taiwan and India and lately the CIS as significant exporters, the role of European and Japanese producers as major exporters and consequently as price makers has been reduced making the market much more competitive.

It is in this global context that the steel industry in countries like India will have to cast their future role.

GROWTH OF THE INDIAN STEEL SECTOR AFTER LIBERALISATION

This sharp fall in the growth rate of steel production has been brought about by several factors which inter alia, include, general slow down in the industrial production and construction activities in the country coupled with lack of growth in major steel consuming sectors. The total production of finished steel and the share of main and secondary producers during 90's and upto the present has been as follows:

After delicensing of iron and steel industry and as a result of the steps taken for creation of additional capacity in the private sector, as on 1.6.98, All India Financial Institutions have cleared 19 projects involving an annual capacity of about 13 million tonnes of saleable steel at an investment of Rs.25,000 crores. Out of these, 6 projects involving about Rs.6070 crores have already been commissioned with an annual capacity of 3.54 million tonnes. Other projects are at various stages of implementation. Thus it will be seen that in the years to come, the percentage production of the private sector will be much larger than production of the public sector in the steel industry.

Along with the production of steel, the production of pig iron in the country during the period 1991-92 to the present has also increased. The details are as under :

(Quantity in million tonnes)

During the early 90s, sponge iron industry had been specially promoted so as to provide an alternative to steel melting scrap which was increasingly becoming scarce. The production of sponge iron (Direct Reduced Iron - DRI) during the period 1991-92 to the present was as under:-

(Quantity in million tonnes)

During the last 2 years alone, sponge iron production went up by over 1.1 million tonne. Today, India is the second largest producer of sponge iron in the world. The production of sponge iron in the country has also resulted in providing an alternative feed material to steel melting scrap which was hitherto imported in large quantities by the Electric Arc Furnace Unit and the Induction Furnace unit. This has resulted in considerable saving in foreign exchange.

APPARENT CONSUMPTION OF STEEL.

The long term projections of steel demand, which formed the basis of capacity planning during Second and Third Five Year Plans were based on an optimistic rise in per capita consumption of steel and high absorption of steel in the economy. This optimism was based on the growth rates of different sectors, structural changes in the economy and import substitution. The finished steel consumption which was only 18.66 Million Tonnes in 1994-95 has increased to 22.63 million tonnes in 1997-98.

India's per capita crude steel consumption as per the figures available for 1997, was only 22 Kg, which is far below the level of other developed and developing countries -- 395 kg., 289 kg. and 84 kg. in USA, the EU (15) and China. The World average was around 126 Kg. in 1997. With the ongoing economic liberalisation resulting in faster economic growth, the steel consumption is expected to increase rapidly.

Apparent consumption of steel is arrived at by subtracting export of steel from the total of domestic production and import of steel in the country. Change in stock is also adjusted in arriving at the consumption figures. It is also treated as the actual domestic demand of steel in the country. The year-wise apparent consumption of finished steel since 1990-91 is given in the table below :-

(The figures in brackets indicate the percentage increase over the previous year/period).

The apparent consumption of steel did not show much increase in 1997-98 mainly due to slowdown being faced by some of the steel using industries like automobile and engineering industries and construction. With the revival of the demand for automobile and engineering goods and general improvement in the economy, it is expected that consumption of steel will increase further.

In order to have a long term perspective and planning, a Working Group for IXth Five Year Plan was constituted for iron and steel sector under the aegis of Planning Commission. The Working Group deliberated upon all aspects including supply-demand projections for finished steel during the terminal years of VIIIth and IXth Five Year Plans i.e. 1996-97 and 2001-02, taking a GDP growth rate of 5% during the VIIIth Plan and 6% thereafter and a GDP elasticity of demand for steel of 1.33. The Working Group also suggested various strategies for an integrated and harmonious growth of the steel sector during IXth Plan period and thereafter.

The Ministry of Steel (9th Plan Working Group) has estimated that the demand for finished steel (including demand for exports) in 2001-02 would touch 38.68 million tonnes. The domestic availability of finished steel from all sources for 1997-98 was about 23.37 million tonnes. It is expected that by 2001-02, it would be 38.01 million tonnes. The projected availability is almost adequate to meet the domestic demand and also export potential of 6 million tonnes as identified by the Working Group during 9th Five Year Plan period. The installed capacity is expected to reach 43.606 million tonnes by the end of the Ninth Five Year Plan. Similarly, by 2006-07 the demand for finished steel is estimated to be of the order of 48.80 million tonnes, whereas production in the country would be 57.80 million tonnes, providing adequate surplus for meeting the projected export potential of 9 million tonnes.

The major public sector integrated steel plants of SAIL including IISCO and RINL, would be able to contribute about 11.449 million tonnes and 2.41 million tonnes respectively. With TISCO's contribution of 3.1 million tonnes of finished steel, the integrated steel plants are expected to produce 16.959 million tonnes. The balance 21.053 million tonnes would be from secondary steel sector during 2001-02. In other words, the Secondary Sector is expected to contribute about 55.4 percent of the availability of finished steel in the country.

The Working Group has identified the following pattern of the investment during the Ninth Five Year Plan:-

Table-II : 2

It will be seen that out of total estimation of investment of Rs.52,174.00 crore in iron and steel sector during IXth Plan period made by the Working Group, public sector's contribution was expected to account for about 38% and the balance 62% of the investment supposed to be coming from the private sector. But subsequently, the Planning Commission undertook a detailed and in-depth exercise to determine the exact investment, which the Public Sector Undertakings in the Steel Sector would be expected to make during the Plan period. The Planning Commission has finally approved a Plan Outlay Rs.19,197.88 crore for PSUs for IXth Five Year Plan. The total approved outlay of Rs.19,197.88 crore for IXth Five Year Plan for public sector undertakings includes a Budgetary Support of only Rs.90.00 crore, which constitutes only 0.47%. The remaining investment proposed to be made by PSUs will be met from their internal accruals and extra budgetary resources.

In so far as private sector is concerned, as mentioned in para 5.4 earlier, the All India Financial Institutions have cleared 19 medium / large projects involving an annual capacity of approximately 13 million tonnes of saleable steel and investment of over Rs.25000 crore.

Ministry of Steel has formulated a well-knit scheme in consultation with Planning Commission for self-reliant and healthy growth of the steel sector keeping in view all gamuts of growth perspective for this sector. This includes maintaining continuous growth coupled with projected investments both in public and private sectors as well as investment for raising technological and managerial skills, quick decision making for product planning, man-power deployment, etc.

DISTRIBUTION OF IRON AND STEEL

As a part of the economic liberalisation process, the Government of India, on 16th January, 1992, abolished the price regulation of the Joint Plant Committee (JPC) on iron and steel, which had been in existence since 1964. However, the requirements of Defence, Railways, Small Scale Industries Sector, exporters of engineering goods and the North Eastern Region continue to be met on priority at prices that are announced by the producers from time to time.

The Development Commissioner for Iron & Steel continues to make allocations of pig iron to the designated consumers and the main producers supply the material on the basis of such allocation. To meet the requirements of steel of Small Scale Industries, allocations are made by the Development Commissioner for Iron & Steel. This is in addition to the purchases made by Small Scale Units, which draw their materials directly from the main producers. The Development Commissioner also continues to issue Release Orders for supplies to exporters of engineering goods and make annual supply plans for the North Eastern Region. The requirements of Defence and Railways are met by the main producers directly on priority in accordance with the past procedures.

Considering the special problems in meeting the requirements of consumers in the North-Eastern Region, special efforts are made to ensure adequate and timely supplies to that region.

 PRICING OF IRON & STEEL

 The pricing mechanism of the Joint Plant Committee (JPC) operating from 1964 was abolished with effect from 16th January, 1992. Producers are now free to determine and announce their prices, which are now governed by market forces of demand and supply.

After deregulation, the main producers, i.e., Steel Authority of India Limited, Rashtriya Ispat Nigam Ltd. and TISCO are charging either the actual freight upto stockyard or freight element as it existed prior to deregulation (now Rs.1710/- per tonne in case of steel and Rs.1165/- per tonne in case of pig iron), whichever is lower. This has ensured that far flung areas and distant States are protected by stipulating that the main producers shall charge either actual freight or freight element existing prior to withdrawal of the scheme, whichever is less.

 IMPORT AND EXPORT OF IRON AND STEEL - Policy frame work:

 The general policy and procedures for export and import of iron and steel, ferro alloys and ferro scrap are at present decided by the Ministry of Commerce in consultation with Ministry of Steel.

With the liberalisation of India's trade policy and commencement of the export-import policy for 5 years (from 1.4.1997 to 31.3.2002), the policy for import and export of iron and steel materials has undergone sweeping changes. Import of all items of iron and steel is freely allowed.

 The value-based advanced license and the old pass-book scheme has been replaced by a new scheme - Duty Entitlement Pass-Book (DEPB) scheme -which combines the positive features of both the schemes besides being easy to administer and more transparent. Under this scheme, exporters on the basis of notified entitlement rates, will be granted due credits, which would entitle them to import goods duty free.

Exports of all items of iron and steel are also freely allowed. Exports of high grade iron ore, chrome ore and manganese ore are made through designated canalising agencies subject to the ceilings imposed by the Government, in order to conserve high grade ores for domestic consumption and production of value added materials.

Consistent efforts are being made by the Ministry of Steel/Development Commissioner for Iron and Steel to ensure adequate supplies of domestic raw materials to meet requirements of engineering exporters.

Import of Steel

India had been annually importing about 10 to 15 lakh tonnes of steel. However, due to picking up of domestic demand, the import of saleable steel in 1994-95 increased to 1.93 million tonnes. The increase in import was mainly in hot rolled coils, cold rolled coils and semis. Import of saleable steel during 1997-98 was about 1.81 million tonnes which was about 1.5% higher than import in 1996-97.

 The total import of steel, pig iron and scrap during the last four years and value thereof are as under:-

Export by Iron and Steel Sector

 It may be mentioned at the outset that India has already registered its presence in the global market in the recent years. While India started steel production in the year 1911, steel exports from India started only in 1964. However, steel exports have been sporadic in the initial years. From 1964 to 1968 India exported a large quantity of steel mainly due to recession in the domestic iron and steel market. Subsequently, exports declined with revival of domestic demand. India once again started exporting steel from 1975, touching a record export of steel in 1976-77. In the year 1976-77, India exported 1 million tonne of pig iron and 1.4 million tonnes of steel. Thereafter, exports again declined only to pick up in 1991-92, when main producers exported 3.87 lakh tonnes valued at Rs.283 crore.

As a result of various policy measures taken up by the Government like liberalisation of import-export policy, introduction of flexibility in the advance licensing scheme and convertibility of rupee on the capital account. The export of Iron and Steel (including Sponge Iron) showed a quantum jump to 2.92 million tonnes valued at Rs.1978 crore in 1993-94. In 1995-96, the export was of the order of 2.79million tonnes valued at Rs.2275 crore. The export of Iron & Steel during 1996-97 was 2.71 million tonnes valued at Rs.2396 crore. During 1997-98, the export of iron and steel was a record 3.04 million tonnes valued at Rs.2937 crores. 

The quantity and value of steel, pig iron and sponge iron exported from the year 1992-93 is as given in the following Table - II

TABLE - II

EXPORT OF STEEL AND PIG IRON AND STEEL

(Quantity in lakh tonnes) (Value in Rs. crore) 

Earlier, exports consisted mainly of plates, structurals, bars and rods, whereas now apart from semis, hot rolled coils, cold rolled coils, colour coated sheets, GP/GC sheets, pig iron and sponge iron are also being exported. In future, it is expected that the exports of more value added items will increase.

STEEL EXPORTERS FORUM 

The Ministry of Steel has set up a Steel Exporters Forum in February 1998 with a view to fulfil the long felt need of the producers and exporters from the iron and steel sector and also to resolve issues, problems and bottlenecks faced by them in exports. The Chairman of the Forum is the Development Commissioner for Iron and Steel and all major steel producers/associations are its members. Representatives of the Ministries of Finance, Railways and Surface Transport are also its members in addition to the Ministry of Steel.

Indian steel is exported to China, Japan, USA, Korea, Taiwan, Indonesia, Thailand, Malaysia, Italy, U.K., Germany, Canada, Spain, Australia, etc.  

The IXth Plan Working Group for Iron and Steel has estimated that India will have an export potential of 6 million tonnes of steel by 2001-02 and 9 million tonnes by 2006-07. The above projection for export has been made keeping in view the need for projecting export as a distinct market, which need to be developed, of course, after meeting the domestic requirements.

FUNCTIONS OF THE OFFICE OF DEVELOPMENT COMMISSIONER FOR IRON AND STEEL

The Office of Development Commissioner for Iron and Steel (DCI&S) through its Regional Offices continued to perform its advisory, developmental and regulatory functions during the year.

 With the deregulation of distribution and pricing of iron and steel, the major functions of the Development Commissioner for Iron and Steel are as follows :

1. Collection, processing and dissemination of basic information relating to the Iron and Steel industry and to act as the data bank of the Ministry of Steel
2. Monitoring of regional price and supply trends and suggesting to the Ministry remedial measures for correcting the imbalances, if any.
3. Monitoring of import and export of iron and steel materials.
4. Advice on matters relating to import and export policies of iron and steel.
5. Management of distribution of iron and steel materials to the designated priority sectors such as, Defence, Railways, State Small Industries Corporations, Engineering Goods Exporters and the North Eastern States.
6. Allocation of materials to the State Small Scale Industry Corporations.
7. Allocation of materials to remote areas like North Eastern States
8. Assistance to Engineering Goods Export Units through priority allocations and monitoring thereof.
9. Survey of various segments of Steel Industry.
10. Rendering assistance to the EAF Units and the secondary sector, by way of capacity assessment, assistance in procurement of indigenous/imported raw materials and import substitution measures aimed at overall development of the sector
11. Interface between the Government and different consumer groups to facilitate consumer - producer interaction.
12. Co-ordination for movement of raw materials to Steel Plants
13. Vigilance functions to prevent misuse of steel obtained from regulated sources. 

REASONS FOR CURRENT SLOW DOWN OF THE IRON AND STEEL SECTOR

The iron and steel sector has been experiencing a slow down in the recent past.. The growth of the steel sector is dependent upon the growth of the economy in general and the growth of industrial production and infrastructure sectors in particular. The major reasons for the slow growth in the last few years include :-

(a) Sluggish demand in the steel consuming sectors

Steel being the basic raw material for the construction industry, the capital goods and engineering goods industry, as also the auto sector and white goods sector, its growth is dependent upon the demand for steel by these segments of the industry. Since no major infrastructure or construction projects have been implemented in the last few years, demand for steel has remained low. No major projects in the oil sector, power sector, fertiliser sector where intensity of steel consumption is high, have come up in the recent past.

b) Overall economic slow down in the country

All major core sectors of the economy have been facing an economic slow down. These include, power, coal, cement, industry, mining and steel. The slow down phenomenon is not restricted to the steel sector alone. Only when the overall economy of the country picks up, would the steel sector also show signs of revival.

c) Lack of investment by Government/private sector in major infrastructure projects

Due to budgetary constraints, no major construction activity in mega projects including fertiliser, power, coal, railways etc. have been planned by the Government. Despite liberalisation of the economy and relaxation in the investment norms, private sector investment is yet to materialise in the core sectors of the economy. This has also contributed in slowing down demand for steel.

 d) Cost escalation in the input materials for iron and steel.

Power tariff, freight rates, coal prices etc. have been under the administered price regime. These rates have been frequently enhanced, thereby contributing to the rise in input costs for steel making.

(e) Continuous reduction in import duty on iron and steel

After liberalisation import duty rates on iron and steel items have been gradually reduced over the years. This has opened up the domestic iron and steel sector to international competition. The table I below indicates the extent of changes brought about in the customs duty of some of the items of steel since 1992-93 :

 f) Continuous increase in excise duty on iron and steel

During the period 1991-92 onwards upto 1994-95, the iron and steel materials have been constantly subjected to an increase in the excise duty rates, as is evident from the table below. Even in the year 1995-96, though there was no increase in rate of excise duty, the methodology of computation of excise duty was widened by adding to the ex-factory prices, the stockyard and distribution charges in the basic price. This resulted in increase in the prices of steel all over the country. Whereas in other sectors of the economy, drastic reduction in excise duties were announced during 1994-95 & 1995-96. In fact, the steel sector is the highest revenue earner for the country and contributes about Rs.5000 crores by way of excise duty alone. It is high time that the burden on the consumers of steel of such a high excise duty of 15% is reduced.

Excise Duty Rates

 g) Greater competition from imports

Due to the drastic reduction in import duties on iron and steel materials along with sharp fall in international prices, the imports of finished steel even in those sectors where adequate capacity exists have shown an increasing trend.

h) Dumping of finished steel in the country

Taking advantage of lower tariff regime and the unrestricted import of all iron and steel materials with the liberalisation of the EXIM policy, some countries are reportedly dumping their finished steel products in India.

 i) Adverse conditions in export markets for iron and steel

Due to economic crisis, the South East Asian countries, the traditional market for Indian iron and steel exports has dried up. Countries, which were hitherto importing steel from India, have cut down on imports to conserve scarce resources and Indian exporters have been forced to look for newer markets elsewhere in the globe. These countries particularly Indonesia, Malaysia & Korea in fact, have now become competitors to Indian exports in other global markets.

The Ministry of Steel has been making all out efforts to help the domestic steel sector to overcome the problems faced by the steel industry at present. These include :

 a) Sluggish demand in the steel consuming sectors

 To boost the demand and consumption of steel, an Institute for Steel Development and Growth (INSDAG) has been set up in Calcutta with leading steel producers in the country as its members. The Development Commissioner for Iron & Steel(DCI&S)has launched a National Campaign for increasing the demand for steel, in non-traditional sectors, particularly in the construction, rural and agro based industrial sector.

(b) Duty on project imports

 To enhance the consumption of steel in the country, the Finance Ministry has been urged to provide a level playing field to domestic steel producers for steel supply against International Competitive Bidding (ICB) under 'project imports' in the fertilizer, power, oil sectors by exempting them for excise and sales tax.

 (c) Reduction in Power & Rail Tariffs

The Ministry of Steel has been interacting with State Governments to provide power at reduced/concessional tariffs especially to mini steel plants all over the country. Similarly, the freight rates adopted by the Railways have been rationalised after inter action with the Railway Board and freight cost on raw material transportation for steel producers is reduced.

(d) Reduction in input costs

The Ministry of Steel has also been able to rationalise the classification of coking coal in consultation with the Coal Ministry so as to reduce the impact of royalty payable on this basic raw material. Import duties on several raw materials, such as, scraps, ships for breaking, coke, non-coking coal etc. used by the steel industry has been reduced steadily over the past 4 - 5 years has been obtained.

(e) Import Duty

 In the last two Budgets, import duties on finished steel items have remained at the same levels as suggested by Ministry of Steel.

(f) Excise Duty

 The Finance Ministry was requested not to resort to further increase in Excise Duties on iron and steel materials, in the last few budgets. On the other hand, a case has been made to reduce the excise duty levels on all finished steel items, especially long products (which are consumed by the construction sector) by at least 10%, as the construction sector cannot avail of MODVAT benefit.

(g) Strengthening of Anti Dumping mechanism

 To check the increasing trend of cheap imports in certain categories of flat products especially from CIS and South East Asian countries, the Ministry of Steel has urged the Commerce Ministry and the Finance

Ministry to strengthen anti dumping mechanism so that fastes decision on dumping can be taken.

 (h) Working Group

 Recently, in response to the strong plea made by the Minister for Steel, the Finance Minister had set up a Working Group headed by Secretary (Banking) to study the problems faced by the steel industry and give suitable recommendations. The Working Group has suggested various measures for implementation by Finance and Commerce Ministries, All India Financial Institutions and the steel producers. These measures are in various stages of examination/implementation. 

 With the onset of liberalisation, the steel industry has now to gear-up, not only to domestic competition, but also to global competition in terms of product range, quality and price. The growth of the steel sector is intricately linked with the growth of the Indian economy and especially the growth of the steel consuming sectors. India has become self-sufficient in iron and steel materials in the last 3 - 4 years. Exports are rising and imports are falling. Production and production capacities are increasing. This position needs to be further consolidated and issues affecting production and consumption need to be resolved on a continuous basis. At the same time, productivity of our steel plants must be maintained at levels close to international standards. The Ministry of Steel continues to play an active and major role in helping the steel industry to overcome bottlenecks in the growth of this sector. With these efforts, the IXth Plan projection for finished steel of 32 million tonnes for domestic consumption and 6 million tonnes of export can be achieved, as also the projections for availability of 3.75 million tonnes of pig iron and 6.18 million tonnes of sponge iron.

India is already recognized as a global player in the steel industry and this sector is poised to play a key role in the international steel scenario by the turn of the century.